House of Commons - Trade and Industry

Select Committee on Trade and Industry Sixth Report

II POLICY ISSUES

10. It is not for the Government, nor for a committee of this House, to pronounce one way or another as to whether the Ilisu dam should be constructed. It is not being paid for from UK public funds. It is not a developmental project; there is no question of it receiving assistance from national or multilateral overseas aid budgets. If export credit is refused by the UK the dam will in all probability be constructed anyway. It is possible but unlikely that Balfour Beatty would seek export credit from another ECA, which would mean a lesser UK content among the sub-contractors. More likely, another partner would be sought to lead the Civil Works Joint Venture. The only question is whether to grant export credit for a project which is unquestionably controversial. There is an obvious commercial interest in backing a UK company in such a contract, which may put it in a stronger position for subsequent work in the same area. Refusal would also damage not only the company's reputation but also that of UK companies generally in the construction business overseas, in which they currently enjoy a high standing. A refusal would remove any UK influence on the project, and would inevitably hurt UK-Turkish relations at a political as well as commercial level.[14] At the same time, it would be quite wrong to go ahead regardless of the potential ill-effects of the dam, in the hope that matters would sort themselves out. In cases such as this, we therefore support the general policy pursued by Ministers of making their assent to export credit conditional on the fulfilment of a number of conditions.

United response

11. Given the number of nations involved it is of particular importance that a common approach is preserved, not only now in the run-up to the signing of contracts, but also in the period between the signature of contracts and the decision on export credit, and, should the project go ahead, thereafter. It is unfortunate that over the past year the process of examining the applications to different agencies seems to have proceeded at a different pace in different countries. As we set out below, there would be much value in the creation of a transparent mechanism for testing the extent to which identified specific areas of concern have been addressed by the Turkish authorities. We recommend that the United Kingdom use its best efforts to ensure that all those countries contemplating the grant of export credit guarantees for the project prepare for detailed joint scrutiny of the revised Environmental Impact Assessment Report and the plans put forward by the Turkish authorities, with the intention of producing a united response in the course of the summer.

Co-ordination of ECAs

12. There has been a degree of co-ordination among the several ECAs involved, under the leadership of the Swiss Exportsrisikogarantie (ERG). ERG called a meeting of the ECAs concerned in July 1998 at OECD in Paris, to seek a common way forward. In the autumn of 1998, however, ERG unilaterally agreed credit, subject to appointment of independent experts to oversee the resettlement programme. The path of multilateral cooperation was put back on track at a meeting in December 1998 in Zurich. The ECAs identified the four key issues and agreed that ERG would act as the lead ECA in discussions with the Turkish authorities "in order to secure their prior agreement to these recommendations".[15] In the course of 1999 the ECAs seem to have proceeded down a broadly parallel path of gradual conditional clearance of the credits sought. Some are awaiting Ministerial clearance.[16]

13. The UK Government appears to have been the last to fall in line with the Zurich conditions agreed fifteen months ago. There has been some value in holding back even conditional assent for as long as possible as a means of impressing the Turkish authorities with the depth of the concerns expressed. It has not delayed contract signature; Balfour Beatty told us that export credit approvals would be required in June 2000.[17] There does not however seem to be anything in the December 1999 UK conditions beyond the matters agreed a year before in Zurich. While US Eximbank's technical input into questions of downstream discharge has been of value, it is not evident to us that ECGD or DTI, or the reports produced by the consultants, has added anything of great substance to the process over the lengthy period of consideration and review.

14. We detect an element of exaggeration in the Secretary of State's suggestion that — "as a result of the initiative that the UK Government has taken in outlining those four conditions we have been able so far to take other export credit agencies with us in seeing that these conditions are met. They broadly accept that this is going in the right direction.....".[18]

Mr Caborn told the International Development Committee that —

The Chief Executive of ECGD was rather closer to the mark in noting that —

It is indeed important that the other export credit agencies involved and their Governments sign up to the four conditions laid down in December 1999 by the Secretary of State. The evidence we have heard suggests that it is likely that they will indeed do so, given that these are the same areas identified by the agencies over a year ago and discussed in some detail over the past year with the Turkish authorities.

Inter-departmental consultation

15. The Ilisu project, and the decision on grant of export credit, obviously raises issues of importance to many Government departments. We have received no evidence to suggest any lack of consultation within Whitehall. Balfour Beatty told us that they had held preliminary discussions with DTI, with ECGD and with the British Embassy in Ankara, who were supportive.[21] Turkey is one of the UK's formally recognised target markets. DETR are the source of expertise on environmental assessment and sustainable development. DfID has also been involved, although peripherally, with an expertise in resettlement issues; it was apparently DfID who put DTI in touch with Dr Morvaridi.[22] As the Minister of State put it, however,

The Secretary of State told us —

We would be concerned if DTI took their own responsibilities for promotion of the Government's commitment to human rights and sustainable development the less seriously because of a perception that other departments would take up those issues, leading in practice to DTI invariably granting priority to commercial considerations.

Transparency

16. The process of consideration of whether to grant export credit for the dam has been bedevilled by an excessive degree of secrecy. The principal problem has been the non-availability to interested groups of the EIAR commissioned by Sulzer/ABB in 1997 and produced in spring 1998. It has been made available to ECAs, and thereby to Governments, but not to others. The independent technical review of the project and of the EIAR commissioned in mid-1998 by ERG from Dr Bonhage has also been circulated exclusively to other ECAs. US Eximbank commissioned two reports, prepared by the authors of the original EIAR, on water quality issues and minimum discharges, in March and April 1999;[25] they do not appear to be publicly available. Balfour Beatty told us that it had been "generally agreed" by the ECAs to follow US Eximbank procedures, which provide for confidentiality of discussions until award of a contract, at which point an up-dated EIAR must be submitted and is published. This decision was apparently taken at least in part because of the absence of any other clearly established procedure.[26] As we learned in the course of our inquiry into the future of ECGD, common procedures for environmental assessment, presumably covering this issue, have been under discussion in OECD for some time.[27]

17. The Secretary of State told us that he would have wanted to make the EIAR public but could not. One reason for commissioning the two UK reviews had indeed been to enable at least the substance of the original EIAR and the Bonhage review to be made public.[28] The ERM Report refers to both the EIAR and the Bonhage review: but at certain passages is obliged to omit even short quotation.[29] We share the view expressed by the Chairman of the KHRP that the process as a whole has been marked by a total absence of transparency.[30] We recommend that the discussions within the OECD Consensus group of Export Credit Agencies address the deplorable and counter-productive lack of transparency in the way in which documentation has been kept from the public on the Ilisu Dam Project. The agreement which is expected to emerge from these discussions must ensure a proper degree of transparency.

18. The two Reports commissioned by the Government were explicitly intended for publication, and undertakings were given that copies would be made available as soon as they were available.[31] The Morvaridi Report, commissioned in June 1999, was apparently subject to several revisions, the final version being available at the end of November 1999: the ERM Report, commissioned in May 1999, was delivered in October 1999.[32] Neither was made publicly available until 21 December 1999. The Secretary of State told us that he felt -

"rather than just publish the reports without giving an indication of Government thinking on them, that I should indicate how we were viewing the reports",

requiring a period of several weeks consideration.[33] He had indicated to a number of interested parties that the reports would be published by Christmas. The Secretary of State told us that they had been brought out on 21 December 1999 -

The Press Notice, without any related Written Answer, was released in the course of Tuesday 21 December 1999, the day Parliament rose. Copies of the Reports were not available, for technical reasons, on ECGD's website for some considerable period. It would have been possible to provide at least the courtesy of a Written Answer: indeed, on the previous day, 20 December 1999, the Minister for Trade replied to a Written Question from Dr Tonge on the Ilisu Dam to the effect that the application had given rise to a number of issues requiring further consideration and that a decision would not be taken until the issues had been satisfactorily resolved.[35] While we accept the reasons for the delay in publishing the two Government-sponsored reports, we consider that the timing and manner of their publication, and of the Secretary of State's conclusions, could and should have been arranged with a greater regard for transparency and the rights of backbench Members of Parliament.

Conditionality

19. There are inherent problems with setting out conditions which have to be met before the grant of export credit. Some arrangements will be required

to assess at given moments before and after export credit may be given the extent to which conditions have been or are being met;

to enforce the implementation in practice of plans and programmes and assurances;

to have credible sanctions in the event of breach of these conditions.

It is more than likely that the Secretary of State's four conditions will be met by the summer of 2000: even the severest critics of the Turkish authorities do not doubt their capacity to produce plans or give appropriate assurances.[36] In some respects it would seem that the authorities are well on the way to meeting the conditions. Whether these plans and assurances are carried forward into action is a moot point.

20. The ECGD contract with a lending bank, or the bank's contract with the Turkish authorities, will have to provide for the possibility of a breach or non-fulfilment of conditions, presumably objectively determined, leading to an end to advances to the contractors or the full amount of the outstanding loan becoming payable. The Secretary of State was confident that there could be a "watertight set of provisions" to cover breach of undertakings.[37] The Minister of State has set this out at greater length, noting in addition that the ECGD contract with the contractor could include a provision to give the ECGD the right to direct them to cease work in the event of a breach of undertakings.[38] The possibility that the contract would allow for termination of the guarantee for alleged breach of undertakings may be thought to put the contractor in an invidious position.[39] In practice, Balfour Beatty's work will be all but over before it will be possible to assess whether all the undertakings have been or will be fulfilled, particularly as regards resettlement and compensation, but also the maintenance of downstream flows. The Government — and the contractors — are reliant on the good faith of the Turkish Government, reinforced by its expressed desire to join the European Union, and the perception that a failure to honour undertakings publicly given to a number of European ECAs would severely damage the country's reputation. Views naturally vary as to how much faith to put in the Turkish authorities.[40]

21. The judgement as to whether undertakings are being met will be very difficult, given the highly charged political atmosphere. Left to their own devices, there is the possibility that individual ECAs and their Governments will come to different conclusions on the same set of data, as a result of domestic and other political considerations. The Secretary of State expressed the hope that the ECA consortium would maintain a common approach to the conditions.[41] Should credit be given, there would be much benefit in establishing now among participating ECAs a common approach to post-contract monitoring, periodic assessment and public reporting of the fulfilment of undertakings given by the Turkish authorities.

Fuel mix

22. The evidence given by the Minister of Trade to the International Development Committee laid some emphasis on the preference felt for encouraging hydro-electric power generation over the obvious alternatives of gas, coal or nuclear plant.[42] We can understand that there may be justifiable restraints on export credit for "dirty" coal plant. The export market for clean coal technology has in the past been advanced to this Committee as one good reason for public subsidy of research and development into that technology; we cannot imagine there would be policy objection to export credit for such plant. There are also a number of UK commercial interests in pursuing gas generation in Turkey. The recently revived plan for a nuclear power station is now also of some interest to the Government as the ultimate proprietors of the Westinghouse nuclear business, following its takeover by BNFL. We would counsel caution in making the grant of export credit unduly conditional on, for example, approval of the proposed fuel mix of another country.

14 Qq 8-13; Ev, p 3, para 18 Back

15 Ev, p 2, para 9: Q 23. See also Ev, p 47, 9 Back

16 Ibid, p 3, para 17 Back

17 Ibid, p 2, para 15 Back

18 Q 131 Back

19 IDC, Q 55 Back

20 IDC, Q 59 Back

21 Qq 4-6 Back

22 IDC, Q 13 Back

23 HC Deb, 15 Feb 2000, col 170 WH; also IDC , Q31 Back

24 Q 121 Back

25 Ev, p38, para 1.7 Back